The skinny on fat taxes and fatter returns

Brian PattonBrian Patton, CCIM is a commercial real estate broker, author and radio show host. Call 770-634-4848. Listen on WDUN, AM 550 and FM 102.9, or stream from www.RichLifeRealEstate.com.

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As I mentioned in a previous article, when you sell an investment property, IRS rules will allow you to purchase a “like” property of equal or greater value and defer the capital gains into the new property. In real life, this can mean a difference in big bucks in your pocket or a big, fat tax bill.

More and more investors are choosing the big bucks in their pocket route.

In a real life example, we just completed a transaction for a client that chose to undergo a 1031 exchange.

He sold a building on the West Coast that had been the home of his business enterprise for many years. His tax bill was going to be around $300,000 on a $1 million profit.

That’s a big bite for anyone to stomach.

Through the 1031 exchange, we found a fitting property that generated $140,000 in cash per year...and that’s after all his expenses, including his new mortgage.

It doesn’t take a genius to agree with this client’s decision.

To go from the threat of paying $300,000 in taxes or collecting almost half of that per year in revenue for the next foreseeable future, is the way any savvy investor would choose.

On top of that, we estimate that this investor will collect over $1.5 million in revenue over the next 10 years, the value of the property will increase by $1.3 million and he gets valuable tax deductions during the next 10 years.

Not bad...turning a $300K debt to the tax man into $2.8 million.

Of course, this strategy can be utilized by anyone. Do you own a beach condo that you enjoy, or are you renting a house that you couldn’t sell?

If so, use this same 1031 exchange technique to create a fat return for the future.